‘Urjit Patel will not quit RBI despite Arun Jaitley’s barbs’

Ruling out the possibility of the Reserve Bank of India (RBI) Governor Urjit Patel “quitting in a huff” after an unprecedented attack on the central bank’s functioning by Finance Minister Arun Jaitley yesterday, a top RBI official said the government’s biggest grouse against the RBI was its reluctance to lift the banking sector out of the cash crunch.

“The government obviously has set its goals for the 2019 general elections and it’s not helping that small and medium-scale businesses are getting affected due to cash crunch in the banking sector,” an RBI director, who didn’t want to be identified, told Mumbai Mirror.

There were plenty of speculations regarding Patel’s tenure in the RBI after Jaitley said yesterday that the RBI had failed to check “indiscriminate lending” during 2008 and 2014, resulting in the current ‘bad loan’ crisis in the banking sector. “You see (between) 2008 and 2014, after the global economic crisis, to keep the economy artificially going, banks were told open your doors and lend indiscriminately,” Jaitley said at an event organised by USIndia Strategic Partnership Forum.

“The central bank looked the other way, there was indiscriminate lending. I am surprised that at that time the government looked the other way, the banks looked the other way. I don’t know what the central bank was doing (because) it was the regulator of these.

They kept pushing the truth under the carpet,” Jaitley said. The remarks by Jaitley came after the RBI’s Deputy Governor Viral Acharya in a speech on Friday warned that undermining autonomy and independence of RBI could be “potentially catastrophic”.

WHAT THE MODI GOVT WANTS

The RBI director told Mirror that the banking sector was reeling under the liquidity crunch of around Rs 1.4 lakh crore, and this has put micro, small and medium enterprises (MSME) under tremendous pressure, especially after the IL&FS fiasco due to which banks have become weary of lending to non-banking financial companies (NBFCs, which are the major source of credit for MSME sector.

The RSS, which has made it amply clear that it detests big corporate houses Indian or multi-national, has always promoted interests of MSMEs through organisations such as Swadeshi Jagran Manch and Laghudyod Bharati.

Hence, pushing credit for MSME sector is high on the Central government agenda.

“The government wants that the RBI should immediately open a window which will increase credit supply to MSME sector. While the RBI has not said a clear no, it has not agreed to the demand either,” the director said.

The director, however, ruled out the possibility of Urjit Patel resigning in a huff. “There are differences over policies but there is nothing personal. Had that been the case, Patel would not have attended the financial stability and development council meet chaired by Jaitley,” he said.

While Jaitley and Patel are not fighting personal battles, there is little sign of reconciliation as well. The RBI numbers say the bank credit to the industry sector grew by a measly 1.9% between April and August of the current fiscal. The credit to micro and small businesses grew by just 2.6%, and medium industry grew by 6.5%. The MSMEs got just 6% of the total credit from banks.

Another issue of contention between the government and the RBI is capital adequacy ratio. According Basel III norms, 8% capital adequacy ratio was sufficient, but the RBI has put capital adequacy ratio at 9%. The government wants the RBI to follow the 8% ration to allow banks to lend more. However, the RBI argues that India is not following the Basel guidelines in toto, hence it is pertinent to have a slightly higher capital adequacy ratio for overall reforms.

“The present crisis is the result of government planting of stories in the media against the RBI. That has eventually led to the outburst by Viral Acharya. It will take month for things to settle down,” the RBI director said.

Meanwhile, a banker from a nationalised bank pointed out an incident mentioned by former RBI governor YV Reddy in his book ‘Advice and Dissent’, in which he said a time comes in every RBI governor’s tenure when he/ she contemplates quitting. Reddy too wanted to resign over differences with then finance minister P Chidambaram but the then Prime Minister Manmohan Singh and others in government convinced him to stay on.

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